Schapiro Offers SEC Insight into RMBS Market

Securities and Exchange Commission (SEC) Chairman Mary L. Schapiro spoke today at the American Securitization Forum’s annual meeting in Washington D.C. to discuss the current state and future of the RMBS market.

She also announced that the SEC will be re-evaluating proposals made under April 2010 Regulation AB in the context of the Dodd-Frank Act and could potentially be re-proposing some of the rules.

Another focus of the SEC will be working to improve the available information in 144A deals.

"I know there is some concern about our proposal to impose registered offering disclosures in the Rule 144A market, particularly with respect to asset classes that have not historically been offered on a registered basis so that there aren’t explicit requirements to import from registered deals to Rule 144A deals," she said.

In her address, Schapiro cited a Wall Street Journal research consultant, Schapiro stated one of the biggest issues facing the industry is that “investors are on strike” following the crisis. She underscored the importance of implementing securitization reform to increase investor confidence and attract new business.

Schapiro also referred to the resistance against most reform attempts as “strong and what I believe to be short-sighted” and urged people not to allow memories of the crisis to fade.

The Chairman spoke on what the SEC considers to be the biggest concerns in the securitization market today and how her agency plans to alleviate those problems.

The first priority she mentioned was the lack of accountability among market participants, which is a matter also addressed in the risk retention rules included in the Dodd-Frank Act. Schapiro offered details on the many rules proposed by the SEC such as tighter retention standards for securitizers and “shelf eligibility” requirements.

In her speech, she also encouraged interested parties to continue their “healthy debate” on reform and to take advantage of the extended comment period.

“The necessity of balancing risk and reward is a key to rational investment decisions and a linchpin of market self-regulation,” Schapiro stated. “Aligning the interests of originators, securitizers and investors by ensuring that entities at every step in the securitization process are accountable for the risks they assume and pass on will make the market more stable and rational.”

Schapiro also addressed the issue of flawed credit ratings and the negative impact the rating agencies' inconsistency had on the market and investors.

She cited that as of January 2008, 644,000 ABS were rated triple -A. However, according to the Senate Investigations Subcommittee, “over 90% of the ' AAA ' ratings given to subprime RMBS originated in 2006 and 2007 were later downgraded by the credit rating agencies to junk status.”

The SEC, Shapiro said, is currently working to reform the credit ratings process and transparency. Among the proposed solutions was a rule that would allow investors access to the necessary information from and findings of third-party due diligence services.

Additionally, she advised investors to help improve the problem by easing their own reliance on ratings reports by agencies.

The last problem Schapiro discussed was the investors' lack of tools and information. She stressed the importance of putting out better, more detailed data and providing this to the investor.

Schapiro concluded her speech by reminding the audience that there was “still a great deal of work ahead of us” in the securitization market.